Debunking Common Finance Myths for Small Businesses
There exist finance myths that every small business owner believes. Debt is one of the scary words in business but a useful one. Getting to know its effect on small businesses will help gauge great growth opportunities as you run your business with confidence.
Here are three finance myths that small businesses believe:
- Debts kill small businesses.
If debt kills young businesses, most growing companies would be dead as they rely on enormous debts for their funding. Three-quarter of these businesses ‘ funding comes from credit cards and small business loans.
Expanding and established companies are not exceptional from debts. A more significant percentage of their financing comes from bank credits.
Keep in mind that not all debts are good for business growth. It should be handled with care, knowing that debt does not kill a business, but it contributes to it.
- Debt financing
This myth, it is assuming debt exists in one form while financing comes from one source. In reality, there are different forms of debt financing and different lenders for different types of businesses.
Here are some of the forms of debt financing:
- Lines of credit
They are a large amount of capital that exists as a short-term loan.
- Invoice discounting
In this, an invoice discounting company lends you money depending on the money they owe you.
- Term loans
It is common for small businesses. Just like mortgages, a business borrows a certain amount of money to be paid back on a specific schedule with interest.
When it comes to debt financing, it does not involve the bank alone. Big banks only approve 23% of the funding request, while alternative lenders approve a more significant percentage of that.
- Equity being better that debt
Many believe that starting a business on equity is better than when starting on debts. However, not all entrepreneurs take equity financing.
While equity can be complicating and insecure as you have to sell off a percentage of your business in exchange for finances, it has its advantages, like business owners incurring minimal risks and getting profitable from equity financing.
On the other hand, debt is also significant because it is not a permanent thing. Its other advantage is the business owner does not have to share profit with others.
In summary, your small business cannot grow without financial aid. Getting knowledge of the reality of financing is essential for the wellness of your business.